# Late Payment Interest Clause Calculator

> Source: https://netray.co/tools/late-payment-interest-clause-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Calculate interest and fixed fees on an overdue invoice and test whether your clause compensates for the cost of waiting.

## Category

cost-finance

## Industry

Discrete Manufacturing

## Audience

- Controller
- Accounts receivable
- Credit manager
- Sales manager

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Overdue invoice amount

**Key:** invoice

**Type:** number

**Default:** 85000

**Min:** 0

**Step:** 1000

**Unit:** $

#### Days past due date

**Key:** days_late

**Type:** slider

**Default:** 45

**Min:** 0

**Max:** 180

**Step:** 1

**Unit:** days

#### Grace period

**Key:** grace

**Type:** number

**Default:** 5

**Min:** 0

**Step:** 1

**Unit:** days

#### Interest rate in the clause

**Key:** rate

**Type:** number

**Default:** 12

**Min:** 0

**Max:** 50

**Step:** 0.5

**Unit:** % per year

**Help:** Convert a monthly rate to annual first. For example 1% per month is 12% per year simple.

#### Fixed late fee

**Key:** fixed_fee

**Type:** number

**Default:** 0

**Min:** 0

**Step:** 10

**Unit:** $

**Help:** Some laws and contracts allow a flat recovery charge per late invoice.

#### Your cost of carrying receivables

**Key:** coc

**Type:** number

**Default:** 10

**Min:** 0

**Max:** 50

**Step:** 0.5

**Unit:** % per year

**Outputs:**

#### Chargeable days

**Key:** chargeable

**Expr:** max(days_late - grace, 0)

**Format:** days

#### Interest due

**Key:** interest

**Expr:** invoice * rate / 100 * chargeable / 365

**Format:** currency

#### Interest plus fixed fee

**Key:** total_due

**Expr:** interest + fixed_fee

**Format:** currency

**Primary:** true

#### Your cost of waiting

**Key:** carry

**Expr:** invoice * coc / 100 * days_late / 365

**Format:** currency

#### Net compensation after carrying cost

**Key:** net

**Expr:** total_due - carry

**Format:** currency

**Primary:** true

**Description:** Negative means the clause does not cover the cost of waiting.

#### Rate needed to cover carrying cost

**Key:** breakeven_rate

**Expr:** if(gt(chargeable, 0), (carry - fixed_fee) / invoice / chargeable * 365 * 100, 0)

**Format:** percent

**Chart:**

#### Interest due vs your cost of waiting by days late

**Type:** line

**X:** days_late

**From:** 0

**To:** 180

**Steps:** 36

**Series:**

- total_due
- carry

**Disclaimer:** Simple interest, 365 day year. Statutory rates, maximum rates and whether interest can be charged at all differ by country and by whether the buyer is a business or consumer.

## Content

**Intro:** A late payment clause only works if it is both enforceable and large enough to matter. This calculator shows the interest on an overdue invoice and whether it covers your cost of carrying the debt.

**Sections:**

#### How to use it

**Body:** Enter the invoice, days past due, any grace period and the annual interest rate in your clause. Add a fixed late fee if your terms or local law allow one, and your own cost of carrying receivables. The result shows the interest, the total due, your cost of waiting and the net compensation. The chart shows how the two lines diverge as an invoice ages, which helps when deciding when to escalate collection.

**Bullets:**

- Convert monthly rates to an annual figure before entering them.
- Count days from the due date, not the invoice date.
- Use a realistic carrying cost that includes overdraft or factoring fees.

#### The formula

**Body:** Chargeable days equal days past due minus grace days, floored at zero. Interest equals the invoice times the annual rate times chargeable days divided by 365, which is simple interest. Total due adds any fixed fee. Your cost of waiting equals the invoice times your carrying rate times days late divided by 365, counted from the due date. Net compensation is total due minus that cost. The break even rate is the annual rate at which the clause exactly covers your carrying cost.

#### Reading the result

**Body:** If the clause rate is lower than your carrying cost, late paying customers are effectively borrowing from you at a discount. Raising the rate is one fix, but stricter credit holds, early payment discounts and tighter dunning cycles often work better. Many customers dispute small interest charges, so some businesses use the clause as leverage in negotiations rather than invoicing it on every late payment.

#### Common mistakes

**Body:** A frequent error is quoting a rate that exceeds a legal maximum, which can make the clause unenforceable or expose you to claims. Another is applying interest without an invoice date and due date that are provable. Record payment terms and due dates on the invoice in your ERP and run an aged receivables report, for example in SAP FI, Oracle Receivables, Epicor or SyteLine, to see what is overdue and by how much.

**Cta:** If aged receivables and interest calculations are done by hand each month, we can help automate a read-only overdue report from your ERP.

**Faq:**

#### Can I charge interest if my contract does not mention it?

**Answer:** In some countries, statutory late payment interest applies between businesses even without a clause. In others it does not. Check the law in your jurisdiction, and put an explicit clause in your terms regardless.

#### Is simple or compound interest used?

**Answer:** Most commercial clauses use simple interest, calculated daily on the overdue amount. Compounding, if allowed at all, must usually be stated. This tool uses simple interest on a 365 day year.

#### What is a reasonable grace period?

**Answer:** Grace of a few days covers bank processing delays. Longer grace periods weaken the clause. Many sellers apply none and state the due date clearly, then use account reminders before adding interest.

#### Should I invoice the interest?

**Answer:** That is a commercial choice. Many suppliers keep the right in their terms and use it selectively. If you do invoice it, send a separate document that cites the original invoice and the clause.

## Search terms

late payment interest calculator, overdue invoice interest, late payment clause, interest on overdue invoices calculator, late payment fee calculator, invoice penalty interest, payment terms late fee

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